This blog is written by Sally Lee, LLB, and Estate and Trust Consultant with Scotia Wealth Management.
Publication 559 of the U.S. Internal Revenue Service states:
The gift tax applies to lifetime transfers of property from one person (the donor) to another person (the donee). A gift is made if tangible or intangible property (including money), the use of property, or the right to receive income from property is given without expecting to receive something of at least equal value in return. If something is sold for less than its full value or if a loan is made without interest or with reduced (less than market rate) interest, a gift may have been made.
There are exceptions to the gift tax which are as follow:
- Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year;
- Tuition or medical expenses paid directly to an educational or medical institution for someone else;
- Gifts to your spouse;
- Gifts to a political organization for its use;
- Gifts to certain exempt organizations described in 501(c)(4), 501(c)(5), and 501(c)(6); and
- Gifts to charities.
I have no doubt American estate planners have come up with strategic and creative ways by which a donor can gift a property during his or her life to a donee. For us Canadians, we can gift as we please without the fear of any tax consequences during this holiday season, and our charitable giving rules are more generous. It is indeed the most wonderful time of the year especially for Canadian donees.